Yep, 'iPhone Nano' Is Coming: WSJ

Another report that the so-called “iPhone nano” really is coming: Sources tell the Wall Street Journal Apple is working on a new line of smaller, cheaper iPhones, as Bloomberg reported last week. One person saw a prototype of the phone last year, and said it’s about half the size—and available to carriers at about half the price—of the current iPhone. Currently, carriers buy iPhones for about $625 and subsidize much of the cost so that consumers can buy them for as little as $199—with a two-year contract, of course. The lower price point should allow carriers to subsidize most or even all of the cost.

The new iPhone prototype featured an edge-to-edge touch screen, virtual keyboard, and voice-based navigation, the source says. It is expected to be released this summer.
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